Tennessee Law Requires Data Centers to Pay Infrastructure Costs

Governor Bill Lee signed HB 1847 into law on May 7, establishing a framework to protect Tennessee utility customers from the rising costs of the state's data center industry. The law, which takes effect in July 2026, prohibits cities and electric companies from subsidizing data center electrical needs and forbids utilities from raising rates for other customers to fund these facilities. Data center owners must now pay the full cost of any necessary infrastructure, including substations and power upgrades.

The legislation allows utilities, such as the Tennessee Valley Authority, to create a separate rate class specifically for data centers. This comes as the Tennessee Valley Authority reports that data centers already account for 18% of its industrial power load, a figure that could double by 2030. The state currently hosts over 60 such facilities.

These measures coincide with significant AI infrastructure growth in Memphis, where Anthropic is taking over the Colossus 1 facility and xAI is planning a Colossus 2 expansion estimated at over $659 million. While state leaders aim to maintain competitiveness for AI, some local officials have resisted the trend, with the Mayor of Cedar Hill proposing a two-year moratorium on new data centers.